100% tax exemption allowed on inter-corporate dividend

100% tax exemption allowed on inter-corporate dividend

KARACHI: The government has allowed 100 percent exemption on inter-corporate dividend to companies entitled to group relief.

Analysts at Topline Securities on Tuesday said that as per the Tax Laws (Second Amendment) Ordinance 2019 issued on Dec 28th, the government has allowed 100% tax exemption on inter-corporate dividends, to companies entitled to group relief.

To avail group relief, one of the company in the group has to be a public company listed on a registered stock exchange in Pakistan, and the holding company has to directly hold 51 percent or more of the share capital of the subsidiary company.

Where none of the companies in the group is a listed company, the holding company shall hold directly 75 percent or more of the share capital of the subsidiary company.

To recall, the Finance Act 2016 excluded entities entitled to group relief from the exemption on inter-corporate dividend entirely.

The Finance Supplementary (Second Amendment) Act, 2019 addressed the issue, however allowed relief on tax liability up to the percentage of shareholding in the subsidiary, given that the company has registered itself for group relief.

Tax Laws (Second Amendment) Ordinance 2019, has now allowed 100 percent relief on tax liability on dividends received from a subsidiary given that the company has registered itself for group relief.

Our checks on few holding companies suggest following potential impacts on unconsolidated accounts based on last full year financials, the analysts said.

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